Trial Needed to Resolve Rights to Distribution of "Citizen Kane" Home DVD

Case: Welles v. Turner Entertainment, No. 0555742P (9th Cir. 5/30/07)

The One Sentence Summary: Summary judgment on claims of copyright ownership involving DVDs of the movie "Citizen Kane" was improper due to factual disputes as to what the parties intended in the contracts for the movie.


What They Were Fighting About: Beatrice Welles, the daughter of Orson Welles, sued defendants claiming that she owned the copyright and home video rights to the movie, "Citizen Kane." The district court granted defendants' motion for summary judgment against the claims.

Ninth Circuit Holdings:

• The statute of limitations on the copyright claims had not run because defendants had not plainly and expressly repudiated plaintiff's copyright rights more than three years before filing of the suit.
• The contracts were ambiguous as to whether the parties would have given home video rights to defendants had they considered the issue in 1939. Mercury retained rights other than "motion picture and television" rights that were granted to RKO, and an expert declaration as to the meaning of that term in 1939 created a factual issue for trial.
• A later agreement terminating the Production Agreement did not rescind the grant of copyright to the motion picture and television rights.
  
  

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A Finding of Willful Infringement By a Corporation Does Not Necessitate Personal Liability Against Its Sole Officer for Inducing the Infringement

Case: Wechsler v. Macke Int'l Trade, Inc., Nos. 05-1242, 05-1243 (Fed. Cir. May 18, 2007)

The One Sentence Summary: The Federal Circuit: (1) reversed the Central District of California's grant of judgment as a matter of law ("JMOL") that the individual defendant was personally liable for inducing patent infringement of the corporation defendant because the district court erred in disregarding the jury's special verdict, and (2) reversed the district court's denial of JMOL regarding an award for lost profit damages because it was a matter of law whether lost profits were available and there was insufficient evidence to support such a finding.


What They Were Fighting About: The plaintiff, Lawrence Wechsler, sued Macke International Trade, Inc. ("Macke") and its sole owner and officer/employee, Anthony O'Rourke, for infringement of his patent for a portable device that dispenses water to pets. The jury at trial found by special verdict that the defendants willfully infringed Wechsler's patent after they became aware of the patent but continued to sell their product for a year. The jury also found that O'Rourke was not personally liable for inducing Macke's infringement. The jury awarded lost profits and reasonable royalties for the infringement. The district court granted JMOL that the jury's special verdicts were inconsistent, and held that O'Rourke was personally liable for inducing Macke's infringement. Macke and O'Rourke moved for JMOL that Wechsler was not entitled to lost profits because he did not manufacture a product using the patent until after the defendants' infringing device was taken off the market, but the district court denied the motion. Macke and O'Rourke appealed the decisions in the Federal District. Wechsler cross-appealed the district court's summary judgment ruling that Macke was not the alter ego of O'Rourke.

Federal Circuit Holdings:

• The Federal Circuit reversed the finding of personal liability against O'Rourke. It found that the district court's grant of JMOL was in error because it is not inconsistent or unreasonable to have corporate liability for willful infringement while the sole officer has no personal liability for inducing the infringement. In its analysis, the court distinguished the standard of willful infringement from that of personal liability for inducement of infringement.
• The court reversed the denial of JMOL that Wechsler was not entitled to lost profits, finding that there was a lack of substantial evidence to support the award. The court stated that the issue of lost profits should only be considered by the jury in determining the appropriate amount after the court has determined, as a matter of law, whether lost profits are available.
• In evaluating the availability of lost profits, the court noted that generally, there cannot be lost profits when the patentee is not selling a product. The court noted, however, an exception when the patentee is able to manufacture and market the product but does not do so for a legitimate reason. The court rejected Wechsler's argument that his later manufacturing of a product was evidence that he was capable of manufacturing it during the earlier infringement period and noted that there was evidence that Wechsler was not able to manufacture and market the product until four months after the defendants' device was no longer available for purchase.
• The court then considered whether Macke's infringing sales preempted Wechsler's subsequent sales or eroded the price he could have charged for the product and found there was no substantial evidence to support either theory for lost profits. To show sales preemption, Wechsler needed to show that he would have made the lost sales, not that he could have made the sales. The court found no support for Wechsler's price erosion argument because there was no evidence that his low price was connected to the infringing sales or that he ever even attempted to sell his product at the higher price.
• In considering Wechsler's cross-appeal, the court affirmed the district court's summary judgment finding that Macke was not the alter ego of O'Rourke.
  
  

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Google's Thumbnail Copies of Nude Photos Were Likely Fair Use, But Questions Remain as to Contribution to Infringement

Case: Perfect 10, Inc. v. Amazon.com, Inc. and Google, No. 06-55405 (9th Cir. 5/16/07)

The One Sentence Summary: Providing thumbnail size copies of images in Google's image search index was likely to be copyright fair use so a preliminary injunction should not have been issued, but the district court should determine whether Google and Amazon contributed to infringement by knowing of infringement by third parties and failing to take "simple" or "reasonable and feasible" steps to avoid contributing to that infringement.


What They Were Fighting About: Perfect 10, the holder of copyrights in photographs of nude women, sued Google and Amazon for direct and secondary copyright infringement for providing image search for infringing copies of plaintiff's photographs posted by third party web sites. The district court had issued a preliminary injunction against Google due to thumbnail copies of the images in its index, and both parties appealed.

Ninth Circuit Holdings:

• The panel rejected Google's challenge to the court's jurisdiction over unregistered images. Once the court has federal question copyright jurisdiction arising from properly registered copyrights, then its remedy can extend to unregistered copyrights as well.
• In order to show a likelihood of prevailing on the merits to obtain a preliminary injunction, Perfect 10 was required to show that it would prevail on the merits of defendants' copyright defenses under the fair use doctrine and the Digital Millennium Copyright Act (DMCA).
• The panel affirmed the district court's use of the "server test" in holding that storing and displaying thumbnail sized images of plaintiff's copyrighted works established a prima facie violation of plaintiff's display right under 17 U.S.C. § 106(5).
• The district court correctly concluded that Google's framing of an in-line linked full size view of the image from the original web page was not a display. Google's computers do not have a copy of this full size image, so there was no "material object" in which the work is "fixed" as required by the Copyright Act.
• The argument that users could be confused into thinking that the framed in-line linked image came from Google's server did not change the conclusion because copyright, unlike trademark law, does not seek to prevent confusion.
• In line linking was not a public performance or display of the work because Google communicated only an address that directed the user's browser to the indexed web page.
• Providing the HTML address for an image through in-line linking did not violate the plaintiff's distribution right under 17 U.S.C. § 106(3). This situation was distinguishable from the "deemed distribution" found in A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001) because Google was not providing a database of links to its own copies.
• Google was not precluded from presenting a fair use defense by the fact that its index incidentally linked to infringing images. This was not bad faith that would prevent application of the fair use defense.
• Reviewing the first fair use factor as to the thumbnails, the purpose and character of the use, the panel found that this factor favored Google. The use was very transformative in creating a useful index. This transformative nature outweighed the possibility that Google's thumbnails would supercede plaintiff's marketing of images to cell phone users. Moreover, the commercial aspect of selling ads on the search results did not change the result from that of Kelly v. Arriba Soft Corp., 336 F.3d 811, 816 (9th Cir. 2003) where the Ninth Circuit had held that thumbnails were a fair use.
• The second factor of the nature of the use slightly favored plaintiff because the works were creative photographs as in Kelly. Because the photographs had been previously published, however, plaintiff was not entitled to the enhanced protection provided for unpublished works.
• The district court correctly ruled that the third fair use factor, the amount and substantiality of the portion used, did not favor either party because Google needed to copy the entire image in order to create its thumbnail index.
• On the fourth fair use factor of effect on the market, the court should not presume market harm when the use is transformative as here.
• The potential harm of thumbnails to a market for cell phone downloads was not demonstrated, so the fourth fair use factor favored neither party.
• The panel then weighed the four factor results against the purposes of copyright, and found that Google's thumbnail index created great public benefit and was likely to be a fair use. Accordingly, the court reversed the preliminary injunction against use of thumbnails.
• In analyzing secondary liability for in-line linking, the panel first rejected the argument that Internet users could directly infringe its images because their computers made local cache copies of the images. The panel agreed with the district court that this would be a transformative fair use for the purpose of decreasing network latency.
• "A computer system operator can be held contributorily liable if it has actual knowledge that specific infringing material is available using its system, and can take simple measures to prevent further damage to copyrighted works, yet continues to provide access to infringing works." (internal quotations and citations omitted).
• "Google could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine, could take simple measures to prevent further damage to Perfect 10’s copyrighted works, and failed to take such steps." The panel remanded to the district court the factual issue of whether Perfect 10 had provided adequate notice of infringing images and whether Google could have taken simple measures to avoid providing in-line linking to infringing images.
• As to vicarious liability, Google did not have the ability to control the third party web sites that provided infringing images. Google's AdSense program was not control because even if a web site was terminated from the AdSense program, it could still provide the infringing images on the internet.
• The district court did not err in its factual determination that Google could not police infringing web sites by image recognition of infringement.
• A claim that Google could change its operations to avoid indexing infringing web sites could establish contributory liability, but could not create vicarious liability which required control over a third party's actions.
• The panel affirmed the district court's finding that Perfect 10 had not shown a likelihood of prevailing on the control prong of the vicarious liability test.
• On the DMCA defense under 17 U.S.C. § 512(d), the district court should consider whether Perfect 10's notices were adequate and whether Google responded appropriately to these notices to qualify for the safe harbor.
• The district court correctly found that Amazon did not directly infringe plaintiff's copyrights by providing in-line links to Google's thumbnails or to full size images on the third party web sites.
• Perfect 10 was not likely to prevail on its claim of vicarious liability as to Amazon because Amazon did not control Google or the third party infringers, and Amazon did not financially benefit from the infringement.
• The district court should determine factual issues as to whether Amazon qualified for the DMCA defense and whether it was contributorily liable due to actual knowledge of infringement and failure to take "reasonable and feasible" steps to avoid contributing to infringement by third parties.
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Updating Mechanical Toy With Electronics Was Obvious and Invalidated Patent Claims

Case: Leapfrog Enterprises, Inc. v. Fisher-Price, Inc. and Mattel, No. 06-1402 (Fed. Cir. 5/9/07)

The One Sentence Summary: An electronic toy for playing letter sounds was obvious in light of mechanical prior art and obvious updates.


What They Were Fighting About: Plaintiff Leapfrog sued for infringement of a patent describing a learning toy that pronounced letters upon selection of a letter. The district court ruled after trial that the asserted patent claim was invalid as obvious, and that the accused device did not infringe because it pronounced whole words rather than individual letters. Leapfrog appealed.

Federal Circuit Holdings:

• The district court correctly construed claim language about selecting a letter to mean that the letter must be chosen. This was consistent with the use of the language in the patent and the ordinary meaning. Thus, the panel affirmed the finding of non-infringement.
• The district court correctly found that the claim was invalid as obvious in light of prior art that provided mechanical means for playing a recording of a sound upon selection of a letter. It was common sense and within the skill of one of ordinary skill in the art to "update [the prior art] using modern electronic components in order to gain the commonly understood benefits of such adaptation, such as decreased size, increased reliability, simplified operation, and reduced cost."
• The district court properly considered and rejected secondary evidence of non-obviousness such as commercial success.
  
  

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Display of "Derivative" Collage Ads on Website Infringes Copyright

Case: Chase Jarvis v. K-2, Inc., No. 05-35609 (9th Cir. April 30, 2007)

The One Sentence Summary: The Ninth Circuit held that K-2 infringed a photographer's copyright by scanning and displaying collage ads that constituted derivative, rather than collective, works.


What They Were Fighting About: Chase Jarivs is a professional photographer who took photographs and sent K-2 slides in exhange for compensation pursuant to five contracts between the parties from 1999 to 2002. Jarvis sued K-2 for: (1) copyright infringement based on K-2's scanning and display of collage ads using his photographs after the contractual term limit for the images expired, and (2) breach of contract and conversion for K-2's loss of 396 of Jarvis' slides and its failure to properly credit him for several images that were used. The district court held that K-2's republication of the collage ads on its website was protected by the collective works privilege pursuant to 17 U.S.C. section 201(c). Jarvis appealed the district court's ruling as to the collage ads' privileged status and the court's damages awards.

Ninth Circuit Holdings:

• The Ninth Circuit reversed and remanded the district court's ruling with respect to K-2's use of the collage ad but upheld the district court's damages award.
• The collage ads were derivative works that transformed the photographer's original images into new promotional posters by altering them in various ways and they therefore did not constitute collective works eligible for protection by 17 U.S.C. section 201(c).
• "A derivative work remains derivative when it is scanned and placed online, just as a collective work would remain collective if it were transferred from one medium to another."
• The district court's damages calculations were reasonable estimates of Jarvis' loss because they were based on objective considerations of market value.
  
  

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The Supreme Court Affirms Limits on the Extraterritorial Reach of Patent Claims

Case: Microsoft Corp. v. AT&T Corp., No. 05-1056 (April 30, 2007).

The One Sentence Summary: Microsoft's sale of Windows code incorporating potentially infringing speech processing software to foreign manufacturers, who then made copies of the code which were installed in computers sold to users abroad, did not subject it to liability under section 271(f), which provides that infringement occurs when one supplies from the U.S. for combination abroad a patented invention's components.

What They Were Fighting About: AT&T's patent for speech processing software was potentially infringed by software in Windows which, when installed, enables a computer to process speech in the manner claimed by AT&T's patent. The district court and Federal Circuit had both found Microsoft liable under section 271(f). The Supreme Court reversed.

Supreme Court Holdings:

• The general rule under U.S. patent law is that no infringement occurs when a patented product is made and sold in another country. However, by statute, section 271(f), an exception exists when one supplies from the U.S., for combination abroad, a patented invention's components. That statutory exception was a response to the Supreme Court's decision in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972), which had held that there was no infringement based on making parts of an infringing device and then selling those parts for assembly and use abroad.
• Here, it was conceded that, when installed, Microsoft's software could infringe, but uninstalled it did not infringe. Microsoft sold its software on a master disk that was then copied by the foreign recipient for installation on computers made and sold abroad. The master disk itself was never installed on a computer. Microsoft also contended that the foreign made copies of that disk were not supplied from the U.S., and thus did not create liability under section 271(f).
• The Supreme Court saw the case as raising two questions: (1) when and in what form does software qualify as a component under section 271(f)? and (2) were the "components" of the foreign made computers involved here supplied by Microsoft from the U.S.?
• AT&T had argued that software in the abstract, and not simply a particular copy, was a component, while Microsoft argued that only a copy of the software could be a component. Likewise, viewed in the abstract, Microsoft could be said to have supplied the component software from the U.S., but it did not supply the specific copies of the software from the U.S.
• The Supreme Court reasoned that because the master disk itself was not installed, it was not a "component" of the computers, and did not create liability under section 271(f) as currently written. Only when the software was encoded in a computer-readable copy, e.g., a CD-ROM, did the software become combinable. The Supreme Court was not persuaded by AT&T's argument that the step of creating readable copies from the master disk was so trivial that it should not play a decisive role under section 271(f). It reasoned that Congress could have, but did not, include within the statute "information, instructions or tools from which the combinable components could be readily generated."
• From this, it reasoned that because the foreign made copies of the software that actually were installed on computers were not supplied from the U.S., they did not create liability under section 271(f). The Court rejected the Federal Circuit's reasoning that the act of copying is subsumed in the act of supplying, such that sending a single copy abroad with intent that it be replicated invokes section 271(f) liability for the foreign-made copies. The Supreme Court noted that section 271(f) prohibits the supply of components from the U.S. "in such manner as to actively induce the combination of such components." (Emphasis in original.) Here, the master disk was not combined with the computers, and the copies made from it did not even exist until generated by third parties outside the U.S.
• The Court noted that any uncertainty on these questions was resolved by the presumption against extraterritoriality, and the traditional understanding that U.S. patent law operates only domestically, and does not extend to foreign activities. It noted that if AT&T desired to prevent copying in foreign countries, its remedy today lies in obtaining and enforcing foreign patents. As to the argument that this ruling created a "loophole" in patent law, the Court observed that "loophole" is properly left for Congress to consider, and close if it finds such action warranted.
  
  

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Withholding Test Data Was Inequitable Conduct

Case: Cargill, Inc. v. Canbra Foods, Ltd., No. 2006-1265, 2006-1302 (Fed. Cir. February 14, 2007)

The Two Sentence Summary: The panel affirmed the district court's finding of inequitable conduct invalidating two of the patents at issue, and a ruling that the other two patents were invalidated by the on-sale bar. The test data withheld by patentee was material and would have been important to a reasonable examiner despite patentee's arguments that the tests were conducted under different situations.

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Supreme Court Provides New Guidance on Obviousness

Case: KSR Int'l Co. v. Teleflex Inc., No. 04–1350 (April 30, 2007)

The One Sentence Summary: A unanimous Supreme Court found that the Federal Circuit had applied its "teaching, suggestion, or motivation" ("TSM") test for obviousness in a manner too narrow and rigid to be consistent with prior precedent.

What They Were Fighting About: The Federal Circuit had reversed the district court's grant of summary judgment for KSR, which had been based on the district court's finding that Teleflex's patent for an adjustable pedal system for cars was an obvious combination of prior art. The Federal Circuit held the district court did not strictly enough apply the TSM test, because it failed to make findings as to the specific understanding or principle that would have motivated one of ordinary skill to make the invention. KSR petitioned for review.

Supreme Court Holdings:

• The patent claim at issue had initially been rejected by the PTO as obvious in light of prior art, but later was allowed because of a limitation requiring a fixed pivot point. However, that limitation was included in another patent, not cited in the prosecution of this application. After issuing, the patent was assigned to Teleflex, which then sued KSR for infringement based on KSR's design of a competing adjustable pedal with electronic throttle control. The district court, applying the test in Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966), found the criteria for obviousness met; it then applied the TSM test, required under Federal Circuit precedent, and found both that the claims were obvious in light of prior art, and that one of ordinary skill would have known from prior art to make the combinations claimed by Teleflex. However, on appeal, the Federal Circuit rejected this analysis because it failed to make findings of the specific understanding or principle that would have motivated the invention, reasoning that because the prior art did not address the precise problem the patentee was trying to resolve, there was no motivation to look at the references. It further concluded that "obvious to try" was not sufficient to constitute obviousness. The Federal Circuit also faulted the district court for considering the PTO's initial rejection of the patent claim in its analysis.
• The Supreme Court rejected the Federal Circuit's rigid application of the TSM test as inconsistent with the analysis of section 103 provided in Graham. Under Graham, a court is required to determine differences between the prior art and claims at issue and the level of ordinary skill in the pertinent art, and then could look to secondary considerations such as commercial success, long felt but unmet needs, failure of others, etc. Consistent with earlier instructions from the Court that caution was needed in granting a patent based on a combination of elements in the prior art, it was sufficient under section 103 if a claim was obvious under the test given in Graham.
• The Supreme Court reviewed prior decisions on obviousness to identity principles instructive in the analysis. It noted that when the work is available in one field, design incentives and other market forces can prompt variations, either in the same or other fields. If a person of ordinary skill can implement a predictable variation, it is likely obvious. Similarly, if a technique has been used to improve one device, a person of ordinary skill would likely recognize it would improve similar devices in the same way, so that using the technique is obvious unless its actual application is beyond the ordinary level of skill. The issue is thus whether the improvement is more than the predictable use of prior art elements according to their established functions.
• The Court acknowledged that the TSM test captured the useful insight that a patent composed of several elements is not proved obvious merely by demonstrating that each of its elements was, independently, known in the prior art. For this reason, it can be important to identify a reason that would prompt the combination. Indeed, because inventions in most instances build upon elements previously known, the TSM test is not necessarily inconsistent with Graham. However, rigidly applied, the TSM test is inconsistent with precedent, because patent protection should not be granted to advances that would occur in the ordinary course, without real innovation.
• The Court further observed that if the objective reach of the claim extends to what is obvious, that is enough under section 103, and the particular motivation or the avowed purpose of the patentee do not control. Indeed, the problem focused on by the inventor may be only one of many addressed by the patent. It also cannot be assumed that a person of ordinary skill will only look to those elements of prior art solving the same problem. Common sense teaches that familiar items may have obvious uses beyond their primary purposes, and one of ordinary skill can fit those elements together to solve other problems. It follows that a patent can be shown obvious if there existed at the time of the invention a known problem, for which there was an obvious solution encompassed by the claims.
• The Court further held that common sense should govern in applying preventative rules aimed to protect courts from hindsight bias.
• Applying the Graham test for obviousness, the Court held that the district court had ruled correctly, and reversed and remanded the case. However, it acknowledged subsequent Federal Circuit decisions that applied a broader conception of the TSM test than used here, noting that those decisions were not now before it, and its holding here applied to the Federal Circuit's application of the test in this case.
  
  

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Injunction Affirmed Against Employees/Managers Who Used Customer List to Compete With Employer

Case: Huong Que, Inc. v. Luu, (Cal. App. 4th, May 1, 2007)

The One Sentence Summary: The trial court properly granted an injunction against defendants who began competing with their employer and using the employer's customer list while still employed.


What They Were Fighting About: The trial court granted a preliminary injunction against former employees of plaintiffs who had established a competing calendar business using plaintiffs' customer lists while still employed by plaintiffs.

California Court of Appeal Holdings:

• Plaintiffs were likely to prevail on their claim of a breach of a duty of loyalty.
• A management/employment contract that was silent on the agent's duty of loyalty did not mean that no duty of loyalty was owed. The principal had a right to rely on the duty of loyalty created by agency law.
• The defendants owed a duty of loyalty not to compete against their principal/employer whether they were characterized as representative agents or as employees.
• Even if the defendants were entitled to plan to establish a competing business, the trial court did not err in finding that defendants breached a duty of loyalty by diverting customers while ostensibly remaining as employees or agents of plaintiffs.
• Plaintiffs were likely to prevail on their claim of tortious interference with contract. The difficulty in quantifying damages at this juncture supported a grant of injunctive relief, and would not stop plaintiffs from proving damages at trial.
  
  

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Undisclosed Prior Sales Doom Dippin' Dots Patent

Case: Dippin' Dots, Inc. v. Mosey (Fed. Cir. 02/09/07 - No. 2005-1330, 2005-1582)

The One Sentence Summary: The Federal Circuit affirmed findings of noninfringement, obviousness, and nonenforceability for inequitable conduct related to a patent for a novelty ice cream product, but reversed a finding of Walker Process fraud.


What They Were Fighting About: Plaintiffs appealed summary judgment rulings on claim construction and noninfringement and jury trial findings on obviousness in a patent infringement case over a novelty ice cream product. Plaintiff also appealed judgment for Defendants on their counterclaim for antitrust violations (a "Walker Process" claim). The Federal Circuit affirmed the judgments except as to the antitrust counterclaim.

Federal Circuit Holdings:

• Among facts significant to the Federal Circuit's ruling were that, in obtaining the patent, plaintiff had overcome a prior rejection for obviousness by arguing that the significant commercial success of its method weighed against the finding. Also, Plaintiff had made sales of a similar beaded ice cream product to over 800 customers more than a year before submitting its patent application, which sales were not disclosed to the PTO.
• In affirming summary judgment of noninfringement, the Federal Circuit rejected Plaintiff's argument that the term "bead," should include irregularly shaped particles, because Plaintiff had previously argued to the Special Master appointed for claim construction that the term referred to round drops or balls; also the written description described the particles as having a smooth, spherical appearance.
• It also rejected the argument that "comprising" should be read such that an infringing process could practice other steps in addition to those claimed. While the term raises a presumption that the list of claim elements as non-exclusive, the Federal Circuit noted it is not meant as a "weasel word," and does not make the claim terms open-ended. Thus, it found the district court's limitation of the claim scope to exclude processes that produce some irregularly shaped particles correct, and concluded there was no infringement.
• On the jury finding of obviousness, in light of the Plaintiffs' prior sales the Federal Circuit determined there must be a conclusion that those sales were in the prior art, and that the process used at that time, combined with other relevant prior art, rendered the patent claims obvious. Substantial evidence supported the jury reaching both conclusions.
• As to the prior sales, the Federal Circuit noted that public sale of goods produced by a process more than one year before a patent is filed places that process in the section 102(b) prior art, both for purposes of section 102(b) and for purposes of obviousness under section 103. Testimony by the inventor that the sales were to test marketability, rather than refine the process, supported the jury's rejection of Plaintiffs' arugment that the sales fit within the experimental use exception to the on-sale bar. It further found that the "trivial modifications" needed to go from the process reflected by the prior sales to that claimed in the patent were obvious elaborations, for which the motivation would have been readily apparent from the problem to be solved. It further found that the commercial success that Plaintiff had originally urged as a basis for overcoming an obviousness rejection could just as easily have been found obviated by the prior sales, since the same factors that lead to later commercial success were largely present in the earlier sales.
• On the finding of inequitable conduct, the Federal Circuit found the first prong of the test, materiality, easily met -- the prior sales were matter that a reasonable examiner would have considered, and they rendered the patent invalid for obviousness.
• As to deceptive intent, the Federal Circuit found no clear error on the district court's determination that it existed. Prior cases have recognized that omission of sales made before a patent's critical date is particularly problematic. Moreover, the weaker evidence of intent could be balanced with the strong evidence of materiality.
• On the Walker Process counterclaim, the Federal Circuit recognized that a finding of inequitable conduct was a broader and more inclusive concept, and in itself did not establish Walker Process fraud - rather, higher thresholds of materiality and intent must be met. Here, while the facts showed inequitable conduct, they did not reach the level for Walker Process fraud.
• Materiality for Walker Process purposes requires that the patent would not have issued but for the examiner's justifiable reliance on the misrepresentation or omission. Here, that test was met. However, on intent, Plaintiffs' statements to the examiner had not been literally false, but rather incomplete, and a mere failure to cite a prior art reference is not enough to meet the standard for fraud. There was no separate evidence of fraudulent intent aside from the omission, and Plaintiffs' failure to cite the prior art could have occurred for other reasons. Defendants had submitted no evidence of their own, aside from the omission, on that issue. Moreover, intent and materiality could not be weighed together, but rather each element must be independently established. Thus, the finding of fraud on the PTO was reversed.
  
  

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